2018 (5) TMI 669 - AT - Service Tax

Liability of interest and penalty - sale of space or time for advertisement - Point of Taxation Rules - Revenue felt that since the appellants had realised a part of the amount of service in advance before the date on which service tax was levied on the said service, the appellant were liable to pay service tax on that value of service tax, which was attributable to the service rendered in the period after the service tax was levied on the said service. Held that - Rule 6 provides for payment of service tax on taxable services on receipt of payment of the value of taxable services, which may be after the completion of taxable service, during the course of providing the taxable service or in advance before the provisioning of taxable service - In the case of appellant, subject services being provided by them became taxable from 01.05.2006 onwards and on that day they were already in receipt of payment in advance in respect of taxable services to be provided subsequently. As such the twin requirements for payment of service tax by 5 th day of the following month namely, (i) that payment should be for value of taxable service to be provided and (ii) the actual receipt of the said payment, existed on 01.05.2006. Demand of interest - difference of opinion - Whether the impugned order is required to be upheld for the purpose of confirmation of demand of interest as held by Ld. Member (Technical) or the interest demand has to be set aside as barred by limitation, as held by Member (Judicial).

Summary

Issues Involved:
1. Liability to pay service tax on advance payments received before the service became taxable.
2. Interest on delayed payment of service tax.
3. Imposition of penalties under Sections 76, 77, and 78 of the Finance Act, 1994.

Issue-Wise Detailed Analysis:

1. Liability to Pay Service Tax on Advance Payments:
The appellants had entered into agreements with M/S Gujarat Ambuja Ltd. for providing taxable service under the category of "sale of space or time for advertisement," which became taxable from 01.05.2006. The agreements were dated 07.10.1999 and 05.03.2005. The Revenue contended that the appellants were liable to pay service tax on the advance payments received for services rendered after the tax was levied. The appellants did not contest the taxability or the demand but only the interest and penalties.

2. Interest on Delayed Payment of Service Tax:
The appellants argued that they had computed their liability on a pro-rata basis as per the instructions from the investigating officer and had deposited the amounts accordingly. They contended there was no justification for demanding interest on a lump sum payment. However, the Revenue argued, supported by the Board Circular dated 05.11.2003, that service tax should be paid on a pro-rata basis but the payment should be made on a lump sum basis. The Tribunal held that the service tax on the advance received for services to be rendered after 01.05.2006 was payable by 05.06.2006, and thus, the interest demand was justified.

Separate Judgment on Interest:
One member (Judicial) disagreed with the confirmation of interest. The Judicial Member noted that the appellants had acted based on the advice from their jurisdictional Central Excise Officers and paid tax on a monthly basis. The Judicial Member referenced the Delhi High Court and Supreme Court decisions, which held that the period of limitation for the demand of duty applies to the demand of interest unless there is misstatement or fraud. Since no suppression was found, the interest demand was considered barred by limitation and was set aside.

3. Imposition of Penalties:
The appellants challenged the imposition of penalties under Sections 76, 77, and 78. The Tribunal found that the appellants were in regular correspondence with the department and had followed the instructions given by the investigating officer. Given these circumstances, suppression could not be alleged. The Tribunal allowed the benefit of Section 80 of the Finance Act, setting aside the penalties. The Revenue's appeal against the dropping of the penalty under Section 76 was dismissed.

Conclusion:
The Tribunal upheld the demand of ?8,33,340/- along with interest but set aside the penalties by allowing the benefit of Section 80 of the Finance Act, 1994. The appeal by the appellants was disposed of accordingly, and the Revenue's appeal was rejected. The Judicial Member, however, set aside the interest demand on the ground of limitation, leading to a difference of opinion on this issue.